A Few Notable Losses and Big Cash Outflows

The high yield secondary market continued to be mixed last week, as it was in the previous couple of weeks. Telecom was up slightly in general - less than a point - while many other industries were unchanged or fell marginally.

But once again, when you look past the indices, there were some individual issues that made dramatic moves last week.

Pillowtex Corp.'s 6% convertible notes and the 9% senior subordinated notes plummeted late last week on worries that the firm was running out of cash. The converts fell 20 points to the low 30s, while the 9% notes of '07 followed suit, falling almost 10 points to trade at 35. That issue was trading at par at the beginning of the year.

The Dallas-based manufacturer of home textile products announced last week that it would post a net loss in the third quarter and that earnings will fall short of expectations in the fourth quarter.

Chiquita Brands and Allied Waste were two others that faced a tough time in the secondary last week. Chiquita fell about 20 points over the past few weeks, according to an investor. It fell once when the company announced it would post less-than-anticipated earnings, and then again when the numbers actually came out.

"It's just getting hammered," the portfolio manager said, although the company still has enough to cover the debt payments.

And Allied Waste saw its bonds fall to 87, after being at about 94 in the beginning of October. Some investors are nervous about the company's $9 billion acquisition of competitor Browning Ferris Industries.

UPC's new 11.25% notes were quoted last week at slightly less than par, about a quarter-point higher than its Oct. 22 sale level.

According to AMG Data Services, the high yield mutual funds continued to lose cash. For the week ending Oct. 20, the latest time frame available, the funds lost $362 million, compared with a cash outflow of $77.9 million the previous week.

In mid-week, the Treasury market rallied. The long bond rose 31/32 of a point, while the yield fell to 6.25%.